Are cryptocurrencies the future of fraud?
Bennett Kleinberg
Dawes Centre for Future Crime, UCL
Anatomy of a P&D
The three phases of a pump-and-dump operation (Kamps & Kleinberg, 2018)
Two important events
- The Internet happened
- Cryptocurrencies
What could go wrong?
Crypto P&Ds
| Old challenges | New challenges |
|---|---|
| low market cap | faster time scale (near real-time) |
| lack of reliable information | broader spread of misinformation |
| low price | new vehicles for “rumours” |
P&D in the wild
Can we detect them automatically?
Data
- scraped cryptocurrency exchange data
- trading data of 1-h granularity
- 20 days of trading, 5 exchanges,
Data + code available at https://osf.io/827wd/
Criteria for P&Ds
- sudden price increase (PUMP)
- sudden volume increase (PUMP)
- marked price drop (DUMP)
Conditional local point anomaly detection
Anomaly parameters
| Strict parameters | Balanced parameters | |
|---|---|---|
| Estimation window | 24h | 12h |
| Volume increase | 400% | 300% |
| Price increase | 10% | 5% |
| Price drop | 1.00 SD | 1.00 SD |
| Alleged pumps | 920 | 2150 |
| Pump-and-dumps | 485 | 1617 |
| Crypto/crypto | 97.9% | 97.0% |
| Low market cap | 84.9% | 81.8% |
P&D detection
Core findings
- potential for detectability
- mainly crypto/crypto pairs
- mostly low market cap
Zooming in
- Exchange-level
- % of traded coins \(\neq\) % of P&Ds
- Some exchanges are used more often than others
- e.g. “Kraken”: 6% of traded coins, < 1% of P&Ds
- among most regulated marketplaces
Zooming in
- Coin-level
- Most are never targeted
- Some are targeted again and again
- 30% of coins \(\sim\) 80% of P&Ds
Repeat victimisation of coins
Core findings
- potential for detectability
- mainly crypto/crypto pairs
- mostly low market cap
- repeat exchange victimisation
- repeat coin victimisation
Real-world tests
Outlook
New problems
- Twitter impersonation
- Announcements change
- Trading in the milliseconds
New questions
- What are the characteristics of repeat victims?
- How is misinformation spread?
- How are groups building trust?
- What’s more than pump-and-dumps?
Ongoing work
- Detection:
- Signals in the accumulation phase
- Signals in the pumping phase
- Anticipation:
- Changes to MO
- Transition to new targets
Interdisciplinary challenge!
Are cryptocurrencies the future of fraud?
Yes Maybe No
Thank you
Collaborator: Josh Kamps
